Financial Guidance to Help Your Business Succeed

Archive for the ‘Helpful Tips’ Category

Please note that the Internal Revenue Service will never send you an email. A few of our clients have been receiving an email with a subject: NOTICE OF TAX RETURN FOR YEAR 2012. This email is not legitimate, nor is any other email you may receive from someone claiming to be the Internal Revenue Service. DO NOT RESPOND to these emails and DO NOT CLICK OR REGISTER links of any kind.

Unfortunately Identity Theft is a growing concern that we must all take precaution against.

If you receive an email or a notice and aren’t sure if action should be taken or you have any questions at all, please call your accountant for advice. We are happy to help lead you in a safe direction.

Have a safe 2013. We look forward to doing business with you in the future.

Regarding Year-End: QuickBooks has been hard at work for the past 11+ months, recording and tracking and storing all of that financial data that you’ve entered so faithfully.

But when you turn the calendar page and make a new start January 1, your accounting software could use some closure on the year that’s just passed. Here are some actions you can take to ring out the old and ring in the new. There’s more you can do (we can help you with the advanced activities) but we’ll just hit the highlights here.

Reconcile, reconcile, reconcile. Yes, we know it’s not one of your favorite chores, but we really like to see all bank and credit card accounts reconciled by the end of the year if at all possible. Void all checks necessary and enter missing transactions.

Figure 1: You can make yourself crazy looking for a nickel when you’re reconciling but it’s a critical function.

Make accrual adjustments. This is complicated, and it only applies if you accrue payroll and liabilities or prepay expenses that are then carried as assets. We’ll need to create journal entries for you.

Close your books.This is totally optional. It depends on whether you want to lock 2012 data to everyone except those who have the password and permissions. If you don’t close them, you’ll have easier access to last year’s transaction details. Regardless of what you chose, QuickBooks will automatically make some year-end adjustments.

Do a physical inventory. Then compare this with what QuickBooks says. Reports | Inventory | Physical Inventory Worksheet.

Figure 2: It’s good to match up your physical inventory count with QuickBooks occasionally, and the end of the year is a good time as any.

Run income tax reports. As you know, QuickBooks lets you assign tax lines to tax-related transactions. Use the Income Tax Preparation Report and the Income Tax Summary Report. Let us know about any errors or omissions.

Check W-2 and 1099 data. You can’t create these forms, of course, until after your final 2012 payroll, but you can get a head start. Ask employees to verify their names, addresses and Social Security numbers for accuracy. Also, make sure that your EIN and SEIN are correct, as well as company address.

Clean up, back up. We can monitor the health of your QuickBooks data file anytime. But year-end is a good time to scrutinize your software’s performance. Has it slowed down, started crashing or returning error messages? We can troubleshoot to find the problem and clean it up. We’re sure you’ve been backing up your file faithfully, but archive all of 2012 and store it in a very safe offsite location — or use Intuit Data Protect for online storage.

Figure 3: Frequent backups are critical, but you should be sure to have a copy of your entire 2012 data file stored somewhere safe.

Double-check tax liabilities. If you’re handling your own payroll, look back to see whether all of your payments and filings have been completed.

Thanks for another year.

Again, these are suggestions. QuickBooks does not require you to do any of them. There’s more you can do, and you will need assistance with some of these. So let’s set up a early 2013 meeting to get you started right in the new year.

We want to take this opportunity to thank you for letting us serve your company in 2012. We certainly appreciate your business, and we’re happy to do what we can to help your business prosper.

P.S. It’s not too early to think about taxes so let us know if you want to get a jump on planning and preparation in January.

In September, the Federal Reserve announced plans to keep the Fed funds rate at “exceptionally low levels” at least through mid-2015. So if you haven’t already refinanced your mortgage, you probably have time to weigh the decision.

Low rates are just one consideration. You also need to answer the following questions:

2. What’s your equity? To qualify for the best rates, you generally must have equity in your home of at least 20%. If your home’s value has dropped, you may need to make a lump-sum payment toward equity. And if you’re “under water” — you owe more on your mortgage than your home is worth — you may not qualify for refinancing at all.

3. How long do you expect to be in your home?Refinancing can lower your monthly mortgage costs, perhaps significantly, and the longer you remain in your home, the greater your overall savings. So if you move in the near term, you might not realize much benefit after you take into account closing costs — averaging more than $3,700 nationally on a $200,000 mortgage, according to a Bankrate.com survey.

4. What’s your mortgage rate?The lower your current rate, the less room you’ll have to reduce your payments by refinancing, and the longer it will take to make back the closing costs.

5. Is your mortgage rate adjustable?Adjustable rate mortgages can be risky because, when inflation rises, your mortgage rate will reset significantly higher. So you might benefit from refinancing to a fixed-rate loan, perhaps paying slightly more in the near term but locking in a historically low rate over the longer run.

6. How long have you had your mortgage?Refinancing restarts your debt clock. Weigh the benefits of lower monthly payments against the costs of starting from scratch with a new mortgage.

Alternatively, low interest rates might enable you to reduce your mortgage length — for example, by moving from a 30- to a 20-year mortgage. This may mean the same or slightly higher current payments, but it will allow you to substantially reduce your interest costs over the loan’s life.

Right now the maximum federal tax rate on LT Capital gains is 15%. Absent Congressional action, starting next year, the maximum rate on LT capital gains will increase to 20%. Also starting next year, there will be a new 3.8% Medicare contribution tax that will apply to the lesser of:

Net investment income (including capital gains)

Modified Adjusted Gross Income (AGI) in excess of $200,000 ($250,000 for MFJ and $125,000 for MFS)

This means that wealthy taxpayers may end up paying 23.8% tax on their garden-variety LT capital gains starting in 2013.

Investment moves should not be made solely to capitalize on the current low capital gains rates. However, if you think that the LT capital gains rates will increase next year and you are planning to sell sometime in the near future anyway, here are some tax planning strategies to consider:

If you own appreciated LT capital gains securities (that you have held for more than a year) that you intend to sell within the next few years, you might consider selling them during the remaining months of 2012 to recognize those gains at a 15% tax rate. If you think a security will continue to appreciate, you can immediately buy it back. This will step up your tax basis to the current value at a low 15% tax rate. Only gains beyond this value will be taxed at the anticipated higher rate.

If the rate increases as scheduled next year, installment sales of certain LT capital gain property (such as a piece of raw land you have held for over a year) provide a number of opportunities to capitalize on the 15% LT capital gain rate for 2012. In fact, installment sales that originate in 2012 offer a rare chance to use 20/20 hindsight in that you have until the extended due date of the 2012 Form 1040 to decide if you want to report the full gain in 2012 and pay taxes at the current 15% rate or instead report the gain when you receive payments on the installment note and pay taxes at whatever rate applies during that year.

The current low tax rates combined with the current low applicable federal interest rates makes 2012 an especially good year to consider making installment sales of capital assets to family members.

In the case of a pre-2012 installment sale (for which it is too late to elect out of installment treatment) it is still possible to accelerate the remaining gain into 2012 if you take certain actions before the end of the year.

With careful planning, we can help you determine whether you would benefit from putting LT capital gain planning strategies in play this year. Please give us a call if you have questions or want more information.

More and more we are seeing clients become victims of identity theft for tax reporting purposes. We submit the client’s return electronically and the system rejects it due to identity theft.

What does this mean?

How did this happen?

What steps can be taken to prevent this?

What happens next?

These are all very good questions and we have the answers!

Identity theft occurs when one person submits a tax return using another person’s social security number. The user creates a fictitious return using fictitious income and expenses in order to generate a refund for their self. The return is generally simple and unassuming so that no “red flags” are tripped and the refund is processed without question.

In order for the thief to be successful in his or her quest, an alternative social security number to their own is needed, and the fake return needs to be accepted before the legitimate identity holder’s return is accepted. Filing your return early and safeguarding your personal information are excellent ways to prevent this from happening to you.

If you are unfortunate enough to have had this happen to you, the IRS has a process in place to fix the problem. Notify the IRS immediately of the incident. They have a specific department designed to handle these issues. Call the IRS Identity Protection Specialized Unit at 1-800-908-4490. Your accountant should be able to do this for you. The electronic filing database will not accept duplicate social security numbers, so you must mail your return in. Included with your return should be a filled out copy of the IRS Identity Theft Affidavit (Form 14039 – obtain it here) along with at least one copy of the following:

Driver’s License

Passport

Social Security Card

Other valid U.S. Federal or State government issued ID

If you are a victim, the IRS will issue you a PIN number that is required to be entered on page 2 of subsequent tax returns filed (near where you sign). The PIN will be mailed to you and will not be reissued so DO NOT LOSE this number. This is very important. This is the only way the IRS will know that a return filed with previously stolen information has been submitted by the legitimate owner.

If you haven’t been victim, but you think you are at risk, you can be proactive in preventing a problem from occurring. For example, if you lost your wallet or your purse was stolen. Maybe your computer was hacked or you let your firewall protection service expire. Call the IRS Identity Protection hotline or file the Identity Theft Affidavit. There is a specific area for those who may be at risk. It is always better to be over prepared than under prepared.

As always, consult your CPA for more tips and precautions regarding Identity theft.

The IRS now has a system to aid with the Free Application for Federal Student AID (FAFSA)! Using a Data Retrieval Tool, college-bound students will be able to transfer information from their tax returns directly to the FAFSA application form. This tool is free, easy, and secure. Hopefully, in the near future, it will dramatically reduce errors as well as the need for schools to request information verification.

Who can use it?

This tool is available for use on the 2012-2013 FAFSA form. In order to be eligible, students must have filed their most current tax return. A Federal Student Aid PIN will be required to operate the tool. This can be obtained through the FAFSA website here. Students that have changed their marital status since December 31, 2011, have amended their 2011 return, filed married filing separate for 2011, or filed a 2011 Puerto Rican or other foreign tax return are not eligible to use the tool at this time.

What if I’m not eligible?

Students that are not eligible to use the Retrieval Tool may need to obtain an official transcript from the IRS. These transcripts are not available until the IRS has processed the applicant’s tax return. Transcripts can be ordered via IRS.gov by selecting “Order a Transcript”, just clicking here or by calling the Transcript line at 1-800-908-9946.

Don’t Forget!

Be sure to contact your CPA for tips regarding deductions and tax credits available for college students.